The New York State budget bill S7509C recently signed by Governor Cuomo includes a provision that establishes the Employer Compensation Expense Program (ECEP). This program is part of Governor Cuomo’s initiative to “Protect New Yorkers from Federal Tax Changes” and also includes an initiative that creates two new state-operated Charitable Contribution Funds to accept donations for the purposes of improving health care and education in New York. Taxpayers who itemize deductions may claim these charitable contributions as deductions on their Federal and State tax returns.
Alternative Employer Compensation Expense Program
The Federal Tax Reform (known as the Tax Cuts and Jobs Act of 2017) eliminated state and local income tax deductibility and limits property tax deductibility for individuals to $10,000, while business-side payroll taxes remain deductible. ECEP serves as a vehicle that preserves deductibility for New York State taxpayers.
Employers that volunteer to participate would be subject to a five percent tax on all annual payroll expenses in excess of $40,000 per employee. This tax would be phased in over three years beginning on January 1, 2019 according to the following schedule:
- Year 1 – 1.5%
- Year 2 – 3.0%
- Year 3 – 5.0%
Under this new program, the progressive personal income tax (PIT) system would remain in place. The Employer Compensation Expense Program (ECEP) would be coupled with income tax relief for employees as well. Employees will receive a tax credit on their wages when they file their annual state income tax return.
When does ECEP take effect?
Employers would make an annual election to participate in this alternative system. The election must be made by December 1st of any calendar year and will take effect for the immediately succeeding calendar year; the first election is on December 1, 2018. If an election is made after December 1st of a calendar year, it will first take effect in the second succeeding calendar year.
Employers who elect to participate would be obligated to pay the new ECEP on employee wages in excess of $40,000. Under the new law, employers cannot deduct the tax from an employee’s wages, but the agency will design incentives for employers to help offset administrative costs of implementation.
Paylocity will continue to monitor this new law as it develops and provide additional updates as further details are made available.
Charitable Contribution Funds
The budget bill has provisions for the creation of two new state-operated Charitable Contribution Funds to accept donations for the purposes of improving health care and education in New York. Taxpayers who itemize deductions may claim these charitable contributions as deductions on their Federal and State individual tax returns. Any taxpayer making a donation may also claim a State tax credit equal to 85% of the donation amount for the tax year after the donation is made.
Thank you for choosing Paylocity as your Payroll Tax partner. Should you have any questions please contact your Paylocity Account Manager.
This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.